Amazon.com, Rackspace Dial Up Overseas Cloud Growth

Amazon Web Services, the top provider of cloud computing infrastructure services, and No. 2 Rackspace Hosting are campaigning overseas to keep their heady growth on track.

Like presidential candidates dueling in swing states, the two cloud rivals are showing up in the same markets. Amazon Web Services, part of online retail king Amazon.com (AMZN), announced on Nov. 12 that it would open a new data center in Sydney. Rackspace (RAX) in August unveiled a new data center in Australia, which it expects will start operating by year's end.

In Latin America, Rackspace is eying a move into Brazil, a market AWS entered last December.

"I think wherever we will be, they will be — and vice versa," Rackspace CEO Lanham Napier told IBD.

Oppenheimer analyst Tim Horan, in a report, says the move by AWS into Australia "is a slight negative for Rackspace."

"While Rackspace and AWS will expand into new markets to compete for international customers, they take two very different approaches," Horan pointed out.

AWS has more financial muscle than smaller Rackspace. Aside from Australia and the U.S., AWS has data centers in Ireland, Singapore, Tokyo and Sao Paulo.

Rackspace opened a data center in London 10 years ago and one in Hong Kong in 2008. It gets about 25% of revenue outside the U.S., mostly from Europe.

Napier says Asia looks attractive.

Amazon Web Services, the top provider of cloud computing infrastructure services, and No. 2 Rackspace Hosting are campaigning overseas to keep their heady growth on track.

Like presidential candidates dueling in swing states, the two cloud rivals are showing up in the same markets. Amazon Web Services, part of online retail king Amazon.com (AMZN), announced on Nov. 12 that it would open a new data center in Sydney. Rackspace (RAX) in August unveiled a new data center in Australia, which it expects will start operating by year's end.

In Latin America, Rackspace is eying a move into Brazil, a market AWS entered last December.

"I think wherever we will be, they will be — and vice versa," Rackspace CEO Lanham Napier told IBD.

Oppenheimer analyst Tim Horan, in a report, says the move by AWS into Australia "is a slight negative for Rackspace."

"While Rackspace and AWS will expand into new markets to compete for international customers, they take two very different approaches," Horan pointed out.

AWS has more financial muscle than smaller Rackspace. Aside from Australia and the U.S., AWS has data centers in Ireland, Singapore, Tokyo and Sao Paulo.

Rackspace opened a data center in London 10 years ago and one in Hong Kong in 2008. It gets about 25% of revenue outside the U.S., mostly from Europe.

Napier says Asia looks attractive.

"Asia-Pacific is at the top of our list, which is why Australia and Hong Kong are on our investment framework," he said. "We haven't figured out our next landing point in Asia, whether we go to Singapore, which has outstanding infrastructure, straight to India, or from Hong Kong to mainland China. Right now we're full-speed ahead in Sydney."

Analysts say Rackspace might not build data centers itself, which would hike its spending, if it steps up international expansion. In Australia, Rackspace leased a data center from wholesale space provider Digital Realty Trust (DLR).

Rackspace takes a go-slow approach in evaluating markets. With Latin America, it has been providing remote support to customers using Spanish-speaking technicians located at its San Antonio headquarters.

Analysts, though, say data centers linked to fast fiber-optic communications lines that are located close to customers give IaaS companies an edge.

AWS says its new Sydney facility will reduce latency — delays in Internet traffic — for customers in the region.

In Latin America, Verizon Communications (VZ)-owned Terremark is well-positioned because of its communications hub based in Miami. CenturyLink (CTL)-owned Savvis, meanwhile, has a strong presence in Singapore.

'Excited' About Latin America

Napier declined to confirm that Rackspace will open a data center in Brazil.

"I understand the speculation," he said. "We're excited about Latin America. Brazil is a market of great interest to us. We've formed sales and support teams to serve that market. We're looking hard at it."

Competition is rising. AWS and Rackspace compete with Microsoft (MSFT), Google (GOOG) and IBM (IBM), as well as privately held GoGrid and Softlayer.

Rackspace has a big software project under way called OpenStack, which could boost cloud growth in the U.S. and overseas, says Jim Breen, an analyst at William Blair & Co.

Rackspace is part of an industry group that aims to make open-source OpenStack, software that runs servers, a standard for use in private and public data centers.

Napier says Rackspace has enough resources to push the OpenStack project and target international customers at the same time.

"We have only so much internal bandwidth," he said. "Whatever we do, we want to do well. But we've got our cloud architecture to a point where we're comfortable replicating that around the world. OpenStack has a nice international pool (of supporters)."

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